Should You Jump Into An ARM?

Adjustable-Rate Mortgages Slowly Coming Back, But What Should You Choose?

Posted on June 16, 2011 by Glen.

When the housing market went bust, one of the ways that the government and lenders have tried to attract new buyers into the marketplace is by lowering mortgage interest rates to historic lows; quite simply, current rates have not been this low in decades.  With low fixed mortgage rates, people turned away from adjustable-rate mortgages because the potential for rate increases, coupled with low fixed rates, made the risk too great for many home buyers.  A recent article on CNN Money, "Don't get trapped in an ARM," highlights the recent return of ARMs into the lending marketplace.  According to the article, the number of borrowers going with an adjustable-rate mortgage has risen 75% since last year.  Even though 30-and-15-year fixed rates remain below 5%, the current 5/1 ARM rate, according to CNNMoney.com, is 3.04%.  So does this mean that you should jump into an ARM because the current rates are so low?  As the article cautions, don't be so quick to pass up on a fixed-rate loan because of the low ARM rates.

Adjustable-rate mortgages are a great option for people who plan to be in their home for only a few years.  A typical ARM will remain fixed at the initial low rate for 3-7 years depending on what type of plan you select.  If you do not plan to stay in your home much longer than these time frames, then you can pay a very low fixed rate for the duration of your home stay and pay off the remaining balance on your loan once you sell.  However, don't be so quick to think that this scenario will work out for you.  Homes in a troubled housing market like today's are taking time to sell, and life has a habit of getting in the way of our best-laid plans - even though you plan to move after a few years, you may end up staying longer and will have to deal with a sudden sizable increase in your mortgage interest rate.  Another reason for electing to go with a fixed-rate mortgage is that these rates are still incredibly low; per CNN Money, the current 30-year fixed rate is 4.5%, and the 15-year is 3.66%.  Eeven if you don't plan on staying in your home forever, the security of a mortgage rate that will not fluctuate can make a huge difference, especially in uncertain economic times.

Purchasing an Irvine home or Irvine condo can be a stressful process, and it is crucial that you educate yourself on the Irvine real estate market and the different ways to finance your Irvine real estate purchase.  If you would like more information about buying or selling Irvine real estate, please do not hesitate to contact us.

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